The Baron's beautiful assistant Francesca (voiced by Gale Garnett) enters the lab to confirm that all invitations have been delivered and inquires about one of the addressees named Felix Flanken (voiced by Allen Swift impersonating James Stewart). Frankenstein explains that Flanken is his nephew and successor in the monster business. This displeases Francesca who covets the role for herself. Francesca even asks why there was not an invitation for "It". Boris replies that "It" was not invited since "It" can be a crushing bore, explaining that "It" even crushed the island's wild boars in his bare hands the last time "It" was invited.

Frankenstein has his zombiebutler Yetch (Swift impersonating Peter Lorre), Chef Mafia Machiavelli, and the zombie bellhops and servants make preparations for the upcoming party while having some zombies patrol the island to make sure that "It" doesn't show up uninvited. The monsters begin to arrive on the freighter that Felix is also traveling on.

However, when Felix proves to be an incompetent, asthmatic (and unsuitably kind-hearted) human, the monsters plot to eliminate him and gain control of the secret formula. Over time Francesca develops feelings for Felix, after he unknowingly saves her multiple times. As Dracula, Frankenstein's Monster, and the Monster's Mate descend upon Francesca, she sends out a letter (via carrier bat) to an unknown recipient. When the monsters corner Felix upon capturing Francesca, they are frightened at the arrival of "It" (revealed to be a giant gorilla who is a take-off of King Kong) who proceeds to go on a rampage since he was not invited. "It" snatches up the monsters and Francesca (on whom "It" develops a crush).

Felix rushes off to tell his Uncle Boris what happened, and is instructed to head to the boat. Boris leads the zombies in rescuing Francesca from "It" using biplanes. Boris convinces "It" to let Francesca go and to take him instead. "It" complies, releasing Francesca. Felix and Francesca manage to get off the island as Boris and the remainder of the monsters remain in the clutches of "It". Displeased that the monsters tried to steal the secret of total destruction for themselves and attempted to kill Felix as well as having to put up with "It", Boris sacrifices his life by dropping the vial containing the formula, destroying the Isle of Evil and every monster on it.

The destruction is witnessed offshore by Felix and Francesca. Francesca tearfully admits to Felix that she is not human, but is in fact a robot creation of Boris von Frankenstein. Felix answers that "none of us are perfect" where he then mechanically repeats the words "are perfect", indicating that he has also been a robot creation of his uncle all this time.

The film was created using Rankin/Bass' "Animagic" stop motion animation process, supervised by Tadahito Mochinaga at MOM Productions in Tokyo, Japan. The process involved photographing figurines a frame at a time, then re-positioning them, exposing another frame, and so forth.[citation needed] In addition to Mochinaga along with assistant director Kizo Nagashima, many other "Animagic" technicians of MOM (re-established as Video Tokyo Production after Mochinaga left for China) including puppet makers Ichiro Komuro and Kyoko Kita, and assistant animators Hiroshi Tabata and Fumiko Magari[citation needed] also worked on the film for Rankin/Bass, but are uncredited.[citation needed] Known as stop-motion animation, it was the same approach used in RKO Radio Pictures' King Kong, Art Clokey's Gumby and Davey and Goliath, and many other films, commercials and TV specials. In partnership with MOM and Dentsu, Rankin/Bass had created several "Animagic" productions including the syndicated television series The New Adventures of Pinocchio, the enormously successful Christmas television special Rudolph the Red-Nosed Reindeer, and the first full-length film Willy McBean and his Magic Machine. Classic monster movies were enjoying a resurgence in popularity in the late 1960s along with humorous monsters like The Addams Family and The Munsters. This campy film is a spoof of horror themes, complete with musical numbers and inside jokes.

Mad Magazine creator Harvey Kurtzman penned the script (with writer Len Korobkin) and Mad artist Jack Davis designed many of the characters. Davis was a natural for the job, being famous both for his humor work and his monster stories in the pages of EC Comics. It has long been rumored that Forrest J. Ackerman had a hand in the script, but while the dialogue is rife with Famous Monsters of Filmland-like puns, Ackerman's involvement has never been confirmed and his name never appeared in the on-screen credits or in original promotion for the film at the time of its release. In fact, Rankin/Bass historian Rick Goldschmidt, in liner notes accompanying the Anchor Bay DVD release, denied Ackerman was ever involved, at the same time as the DVD packaging promoted Ackerman's name. Goldschmidt repeated this on this in a 2006 blog entry, based on his interviews with Korobkin, who claimed to have written the original screenplay which then was revised by Kurtzman, but never worked with Ackerman.[6]

In addition to the famous monsters seen in the film, Mad Monster Party also features several celebrity likenesses. Karloff and Diller's characters are both designed to look like the actors portraying them, while Baron Frankenstein's lackey, Yetch, is a physical and vocal caricature of Peter Lorre. Allen Swift also does impersonations when voicing his characters like doing his rendition of Jimmy Stewart when voicing Felix Flankin, Sydney Greenstreet when voicing the Invisible Man, and Charles Laughton when voicing the Freighter Captain.

Mad Monster Party was one of several child-friendly projects Karloff lent his voice to in his final years (such as the TV adaptation of How the Grinch Stole Christmas!). It was his final involvement in a production connected to the Frankenstein mythos that had propelled him to stardom some 36 years earlier.

The film has been available on video for years, first on original distributor Embassy Pictures' home entertainment unit, and then on other independent labels before StudioCanal acquired some rights to the film. Currently, Lionsgate distributes the film on video under license from StudioCanal.

Before Lionsgate's current video release of Mad Monster Party, almost all video releases have been from 16 mm film and were of very poor color quality. The original film negative was water-damaged some years ago, but recently Sony Pictures Television (which now holds the television rights) unearthed an original 35 mm pristine print. This print was digitally remastered, and is the source for the current DVD issue and all subsequent television showings. Anchor Bay released the previous DVD on August 19, 2003, then re-released it on August 23, 2005 with additional features. On September 8, 2009, it was released as a "Special Edition" DVD by Lionsgate. The special features include a documentary including interviews with Rick Goldschmidt, Arthur Rankin Jr., voice artist Allen Swift, storyboard artist Don Duga, musical director Maury Laws and others. The film was released on Blu-ray on September 4, 2012.

Although the opening credits identify Ethel Ennis as singing the opening theme song and, in the same frame, a soundtrack being available on RCA Victor, a commercially released soundtrack was never produced in any format. In September 1998, Percepto released a CD of the soundtrack for the film. "The Mummy" is allegedly performed by Dyke and the Blazers. Tracks without performer credits are instrumentals and contain no dialogue.